Abstract

We review the existing evidence on the role of international capital markets in an ageing world in a non-technical way and with an eye towards policymakers. The set-up of this paper is as follows: In section 2 we sketch the important demographic changes ahead of us. We pay attention to differences across countries in these demographic transitions, as well as to the factors behind the process of demographic changes. Section 3 discusses how the different factors underlying the ageing process influence the balance between national savings and investment. It takes a closer look at the different elements of the current account: savings, investment and the government budget. It also addresses possible policy responses to ageing and their effect on international capital flows. Section 4 then considers the empirical evidence about capital mobility and the possibility that capital will flow from North to South (and back). Section 5 then studies the effects of a lower (or higher) interest rate on the effectiveness of savings-enhancing policies, using the example of the funded pension system of the Netherlands. Section 6 draws conclusions.